Recession in the next Six Months?

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There’s a 70% chance of recession in the next six months, new study from MIT and State Street finds

  • A new study from the MIT Sloan School of Management and State Street Associate says there’s a 70% chance that a recession will occur in the next six months.
  • The researches used a scientific approach initially developed to measure human skulls to determine how the relationship of four factors compares to prior recessions.
  • The index currently stands at 76%. Looking at data back to 1916, the researchers found that once the index topped 70%, the likelihood of a recession rose to 70%.

There’s a 70% chance that a recession will hit in the next six months, according to new research from the MIT Sloan School of Management and State Street Associates.

The researches created an index comprised of four factors and then used the Mahalanobis distance — a measure initially used to analyze human skulls — to determine how current market conditions compare to prior recessions.


The Mahalanobis distance was originally conceived to measure the statistical similarity of the values of a set of dimensions for a given skull to the average values of those dimensions for a chosen group of skulls, the researchers explained.


It measures the distance between a point and a certain distribution.

Using this principle, the researchers analyzed four market factors — industrial production, nonfarm payrolls, stock market return and the slope of the yield curve — on a monthly basis. They then measured how the current relationship between the four metrics, assessed on a monthly basis, compares to historical readings.

Looking at data back to 1916, the researchers said that the index was a reliable recession indicator since it rose leading up to every prior recession. They found that when the index topped 70%, the likelihood of a recession in the next six months rose to 70%.

As of November 2019, the reading on the index was 76%.


(Sources MIT Sloan, CNBC)


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